The Budget Reform Pivot

An honorable shutdown exit for the GOP and President Obama.

Updated Oct. 6, 2013 6:11 p.m. ET

Both parties are digging in deeper over the budget impasse, and the likelihood now is that the partial government shutdown elides into the debt-limit deadline later this month. Neither side may be listening at the moment, but there is a political exit from this mess that has the added advantage of helping the country.

The exit ramp is for both sides to pivot from the ObamaCare stalemate to negotiations over tax and entitlement reform. The Ted Cruz Republicans would have to give up their mission to defund the Affordable Care Act with only one house of Congress. President Obama would have to show he's willing to negotiate with Republicans over the debt limit. Both sides would step back from the brink and give themselves a chance for some long-term political gains.

The advantages for the Republicans are obvious. The Cruz faction has paraded the GOP into a shutdown without a strategy for getting out, as even some of them are figuring out. Their strategy of "keep it shut" is a dead end. The political impasse is doing no good for the Republican image, and the longer it continues the more it is putting at risk in 2014 the swing seats that provide its House majority.

Mr. Obama is simply not going to delay or defund his signature legislation. And the political irony is that instead of learning about the glitches and problems of the health law's rollout this week, the public is hearing only about the GOP willingness to punish other Americans to get rid of ObamaCare. The Cruz Republicans have helped Mr. Obama change the subject from his faulty program to their political tactics.

By turning to a reform negotiation, Republicans would have the chance to achieve at least some of their policy goals. Those include a down payment on entitlement reform, including significant changes in Medicare. Republicans won't get Paul Ryan's superior 2011 reform, but they might get increases in the retirement age, the end of first-dollar Medigap coverage, and other changes that over time add up to real fiscal savings. They might even get the Keystone XL pipeline or repeal of the medical-devices tax in the bargain.

ENLARGE

President Barack Obama
Agence France-Presse/Getty Images

Such a negotiation is also the GOP's best chance for tax reform before 2017. The obstacles will be high—and insuperable if Mr. Obama insists on $1 trillion in additional revenue on a static basis. But Mr. Obama is on record as favoring a cut in the corporate tax rate, and Finance Chairman Max Baucus also wants to leave the Senate with a reform legacy.

Progress on either front would show swing voters that Republicans are able to govern without maximalist demands. They could point to progress on reducing debt, and above all they would help the economy and thus show that their policies raise middle-class incomes. Regarding ObamaCare, they could rightly say they fought as hard as they could to delay it, but that to replace it they will need more Republicans in Congress. This could be a major campaign theme in 2014.

As for Mr. Obama, he'd benefit immediately by stopping any damage from the shutdown and the threat of a debt default. He might think Republicans will blink on the debt limit, but that's what he thought about a shutdown. He also might think he can blame Republicans if the worst happens, but any economic harm will mar his final term.

Mr. Obama's left wing won't like entitlement reforms, but it will like easing the sequester spending caps on education, welfare and public works. If Democrats really believe that public spending is crucial to economic growth, they'll also get more spending immediately in return for long-term reforms. Without a larger budget deal, Democrats face three more years of ever-tightening discretionary budget caps.

The biggest upside would be the growth impact of tax reform. On the economy's present growth trajectory, Mr. Obama will finish his second term with lower real middle-class incomes than in 2009. He'll be the toast of the hedge-fund class but have increased income inequality. If he wants a second-term economy like Reagan's or Bill Clinton's, he needs bipartisan cooperation for pro-growth reform.

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We realize this is all a political long shot. The Cruz faction is a rump caucus, but it will have more influence the more GOP leaders fail to deliver any reform. Mr. Obama can reduce its influence if he uses this moment as an opening for compromise rather than to humiliate House Speaker John Boehner into surrender or a debt-limit crack-up. On the other hand, Mr. Obama may welcome a default if his real political goal is to tar the GOP as irresponsible and take back the House in 2014.

There's also the question of whether Mr. Obama is even capable—temperamentally—of negotiating such a compromise. He is so sure of his own superior political virtue that he disdains meeting other politicians halfway (foreign dictators perhaps excepted). We'll find out soon enough, but he can't say he wasn't offered the opportunity.

What if BO does not negotiate --The bond market is telling us that there is enough revenue coming into Treasury to pay the debt, pay the military and pay Social Security --How will the Professor of Apocalypse explain that?

"And the political irony is that instead of learning about the glitches and problems of the health law's rollout this week, the public is hearing only about the GOP willingness to punish other Americans....The Cruz Republicans have helped Mr. Obama change the subject."

I keep reading this! and ok, while it's too bad there isn't more attention being paid to the horrendous Obamacare rollout (maybe "limp-out" would be a better term.) I'm not worried.

the govt. shutdown is going to end soon (I give it another week tops), and Obamacare is going to continue to be horrendous. there will be plenty of time to talk about that before the midterm elections.

Your "solution" is nonsense. Obama's whole purpose is to damage America, and in accomplishing that, he doesn't care who gets hurt. He will not negotiate on anything, not even the brand of toilet paper in the restrooms. He is a totalitarian mentality, and has been from the start. That's why his Senate voting record was to the left of the self-described socialist Bernie Sanders. The WSJ and countless others have never understood who this man is, a Saul Alinsky radical. Most are so seduced by the idea of a black man in the White House that they have lost all ability to reason. Any Republican who had done half of the illegal things Obama has done would have been impeached by now.

This is America's second civil war. If the Republicans cave while Obama refuses to negotiate anything, they are finished, and we will have a leftist whacko federal government in America forever, just as we already do in California. The soft tyranny we are moving into now will then become a hard tyranny.

The impasse we have now is the hill to win on or die on. If the Republicans give in now, it's over. It may be over anyway.

You're wrong. Whether or not the Republicans cave now does not alter the inevitability of the outcome you described as being contingent on them caving now. Perhaps the Republicans should be admired for their Quixotic fight, but it is no different than the Byzantine Greeks who kept fighting once the moslem invaders had finally breached their walls after 700 years of trying. It was understandable and possibly laudable, but it was also futile.

Those "hot potatoes" having to be dealt with later on will never be dealt with. "Later on" never takes place. The fact of the matter is both parties like to spend and the spending continues to grow the bureaucracy to the point where nothing will shrink its growth.

Not to sound cynical, but the only thing that will kill this bureaucratic disease is the marketplace. Upticks in interest rates will balloon the national debt to the point where raising the debt ceiling will be a topic of conversation on a bi-weekly basis.

We're beyond the point of rationality and responsibility as it pertains to fiscal policy. We have looked into the abyss and have seen the devil, and the reflection is a picture of ourselves.

Specifically which Community Rule is being violated? the only I see as a possible candidate would be the one about sticking to the topic. But if the topic is why the GOP is locked into a self-destructive mode of behavior and this offers a possible explanation for that behavior, I think it is relevant.

Single-minded focus on ObamaCare will freeze these talks solid: the administration, already defensive and skittish over the logistical problems anticipated and now being encountered with ACA implementation, that will persist for many months, will not give an inch on this subject, from pure face-saving obstinacy. The damage of a shuttered government, even if Boehner can sell a way to service debt by the 17th while still keeping the pressure on by keeping government closed, will accumulate -- and BOTH Republicans and Democrats will suffer electorally. This inability to transcend differences and govern will be remembered.

Focus on what we've sought engagement on for YEARS as the prize: entitlement and tax reform talks, that must begin soon with solution framework timing that dovetails with FUTURE debt-limit boundaries. No blue-panel commissions, such as Simpson-Bowles, whose recommendations BOTH sides are free to discard, and did: DIRECT talks between Congress and the administration, coordinated by the White House and with material participation by Mr. Obama.

Surely this is more important than single-minded hondling with Persian rug merchants over Home Depot nuke kits.

Whether to begin with the pathetic naiveté or the bracing cynicism of this op ed is a dilemma. The trashing of the GOP efforts in order to lay out a WSJ wish list is mind numbing. And to think for one moment that this sage advice will be heard over the trashing comments on Cruz and the GOP is totally ridiculous. The only words of reality are stated in the last paragraph which sums up perfectly what Obama and his liberal cohorts have in mind. Why would they take conservative advice now when their "take no prisoners" full speed ahead agenda is working so well for them. I am disgusted with them all and sorely disappointed in the focus both in the press and in DC on the political game over the path we are on to our fiscal and therefore existential destruction as a nation.

The Republicans, of course! Mr. Cruz & Company have not only provided cover for the problems arising from the rollout of the ACA, they have provided the gift that keeps on giving. As additional problems occur with the program, Mr. Obama will be able to complain that if only those obstructionist Republicans had not fought Obamacare at every turn, it would be functioning so much better! Yes, the legislation will suffer not from the terrible flaws created at inception, but rather from the interference of those meany Republicans who don't want hard working Americans to have health care.The finger will be firmly and forever pointed at the Republicans. The die is cast...

After making me wade through those words, the WSJ tells me that there is not a chance in the world that Obama would go along with it. As an aside, the Iranians say Obama made five call to them. He had only one meeting with the GOP.But how about this: The GOP should take one more stab getting the Feds going. They should pass a Balanced Budget. So If the Treasury says next years expected tax revenues equals $2 trillion then that is the limit for spending. The GOP should budget explicit monies for defense and law & order and the other line items until they get to Obamacare - there the spending limit should be $1.00 with the provision that no one is exempted from the law and the entire law is postponed for a further year until all the bugs are removed. (sue the software providers for the re-coding costs). Then the GOP has the time to circle the wagons and win 2014. Then let see if Harry is still willing to prevent kids from getting cancer treatment..

"There's also the question of whether Mr. Obama is even capable—temperamentally—of negotiating such a compromise. He is so sure of his own superior political virtue that he disdains meeting other politicians halfway"

It's not a question, its fact, Obama is so full of himself, he doesn't feel the need, each failure gets spun as somebody else's fault. Look at the current debate, Obama won't even talk to them, yet its still the Republicans fault.

The debt is frankly irrelevant. The point at which there were options other than monetizing it passed years ago. There is sound logic to growing the government to create as much dependency and therefore unthinking electoral support for the Party of Government now, based on ballooning debt, while the dollar still retains an inordinate amount of value because it remains, for the time being, the default global reserve currency. The Democrats will have a much harder time growing the government to ensure their permanent stranglehold on the body politic when the US has to defend the dollar and obtain hard currency in order to import necessary commodities. This problem was the continuous bane of British socialists throughout the post war period, and it wouldn't have been had the world still needed the Pound Sterling to do third party trades.

It 's wrong to say that Mr. Obama and his handlers "may welcome a default." There can be no doubt about it. They do welcome a default. The Democrat Party has every incentive to do whatever it takes and move the goalposts as far as necessary in order to achieve default. It is hard to imagine something that will serve their political interests more.

The suggestion by the WSJ editorial staff that some sort of compromise would include their standard (if accurate) pro-growth shibboleths is laughable, as well. Given the burgeoning rate at which the populace is dependent on government largess for their sustenance, the economy is performing exactly as the Democrats would want it to as is. Growth would undermine progress toward the sort of US society that serves their interests best.

There is sound reason, based on the ideology that has animated Democrat Party foreign policy since at least the McGovern era, to negotiate with dictators who are implacable enemies of the US. There is absolutely no reason for them to negotiate with Republicans, let alone make concessions that would lead to the sort of economic growth that would strengthen the private sector and run the risk of creating economic actors independent of government.

no one, absolutely positively, wants a default. The treasury dept indicated today that it would unleash an economic crisis even worse than 2008-09.

However it is plain wrong to threaten a default in order to extract some negotiating concession, period. The republicans will have to climb down and any negotiation leverage they would have had over entitlement reform, long term spending balance etc. will have been completely evaporated by the use of bad-faith tactics to threaten economic disaster if they don't get their way.

A clean continuing resolution and debt limit extension would win a vote in the House if it came to the floor. But a few dozen tea-party nut-jobs are preventing the will of the majority from being done. And by the way, they got elected in gerrymandered districts - the democrats having won 1.5 million more votes for congressional seats than republicans. Is this legitimate? I think not. The republican party is about to be thoroughly humiliated and demoralized.

If the Democrat Party knows anything, it is to never waste a crisis. If the default indeed unleashes a crisis worse than 2008-9, they will benefit from it in countless ways. Since they control the information available to the vast majority of the population, they have the luxury of assigning blame regardless of the truth. They know how to use that power. To address the crisis, they will grow government. That larger government will be used to reward and empower supporters, while the regulatory and confiscatory power of government will be used to punish enemies. To the extent that an even more rapid economic decline of the nation will accelerate the decline in the standard of living of most Americans, it will grow even more rapidly the burgeoning number drawn into government dependency and therefore converted into Democrat Party voting automatons. Everything works to their advantage in this scenario, and they understand that. Therefore, there is no reason for them to negotiate, or compromise. That they have so many already so completely brainwashed with their Ministry of Truth version of events merely proves my point.

History is littered with the Democrats' broken promises to address other issues "later" after they get the money they want today. Even Reagan got rolled a couple times. The Republicans have no choice but to use threats of shutdown, sequesters, defaults and the like because they have, at long last, learned that an IOU from Democrats, in the form of a promise to work on something "later" has a value of zero.

You lost me with the dire warning from Treasury. They have no credibility on anything.

The balance of you views are equally unavailing. You're saying that every Congressional district in the entire country was drawn so only GOP seats are gerrymandered and all Dim seats perfectly drawn without reference to political considerations. Do you know how stupid you sound?

From the Op-Ed - "On the other hand, Mr. Obama may welcome a default if his real political goal is to tar the GOP as irresponsible and take back the House in 2014."

What do you mean "if"? Of course his goal is taking the House and retaining the Senate in 2014. And there's no way on earth he will negotiate with Boehner and the Republicans. He's all in for a final two years of totalitarian rule.

The Republicans better reel in Sen Cruz and get the debate shifted to the debt ceiling pronto. Obama will flounder on the rocks of that debate . . . the majority of Americans (maybe a small majority) are appalled at the state of our financial house and Obama is oblivious to it.

A Debt Limit fight will be taking place over a FULL shut down, no pay to the military, and a possible stock and bond market crash on threats of interest payment default. Another stock market crash with blame laid on the Republican intransigence. The Republicans will be rolled on a Debt Limit fight. The Republicans would be idiots to be drawn into that battle.

Their economic policies meant to give a greater distribution of wealth and "strengthen" the middle class have only done the opposite. They have stagnated middle class wages, meanwhile sending the stock market soaring, greatly expanding the very inequality that they sought to destroy.

Taxing the rich to feed the poor only works in 13th Century literature. In the real world it ends with less opportunities for job creation and growth. Clinton said he would put everyone in a house, result is the 2008 financial collapse sending home values tumbling. Obama said he would give everyone healthcare, result is a drastic increase in part time jobs to the detriment of full time, stagnant wages, higher premiums, and elite doctors walking away from their practices.

Unfortunately we've been walking down this road for 80 years, and it seems that until it blows up, Liberals will continue to march us down this path.

<<They might even get the Keystone XL pipeline or repeal of the medical-devices tax in the bargain.>>>

Those would be good tactical things to shoot for. Wonder if they might also get a repeal of the employer mandate, which even a lot of Democrats aren't comfortable with. Or at least raise its threshhold to 100 employees, which would give small businesses more elbow room.

The article is completely right that Obama isn't going to permit defunding or delaying Obamacare. He's also not going to agree to raise the Social Security / Medicare eligibility age as part of this deal. Those "hot potatoes" will have to be dealt with later on as a true negotiated bipartisan deal that isn't subjected to the coersion of a contrived government shutdown.

Let's hope the Republicans will focus on attaining compromises that are actually possible instead of busting themselves and the country in overreaching for things that are unrealistic given the limits of the hand they're playing.

The Republicans could make funding the entire program contingent upon re-imposing the employer mandate in accordance with the law as written and removing the subsidy to White House and Congressional staffers. The Democrat Party will block that as well, but at least then they will be seen as blocking what they want, if only by those who obtain information from sources other than official Party agencies such as ABC, NBC, CBS, CNN, et. al.

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